Profound impact of quota expiry on Hong Kong garment industry: Study

Hong Kong, 23 August 2005 – DHL, the world's leading express and logistics company, and the Enterprise Value & Logistics Consultancy Division of the Hong Kong Productivity Council (HKPC) have released the results of a special joint study on the end of the garment quota system. The study reveals that garment exports from the Mainland are expected to level off substantially in the second half of 2005, following a marked increase in the first half of the year.

Titled "Opportunities And Challenges As The Garment Quota System Ends", the study is an intensive look at the removal of the Multi-Fibre Arrangement (MFA) and its global garment quota, its impact on the local industry, and possible trends in the future. The study was conducted via intensive telephone and face-to-face surveys of over 200 small, medium and large enterprises operating in the garment sector across a wide range of garment types.

"Combined with insights from our staff and clients across Asia, the survey gives clear signals that in spite of current uncertainties, China is set to become the world's preferred garment exporter," said Mark Ting, Vice President of Strategy Planning and Program Management, Greater China and Korea, DHL Express. "Safeguard protection measures may slow the process, but the long-term direction is clear."

Research by Vincent Li, General Manager (Enterprise Value & Logistics Consultancy), HKPC, shows that new safeguard measures from the United States and the European Union - which are intended to mitigate the anticipated flood of Chinese exports following the expiry of the garment quota - are causing Hong Kong manufacturers and traders to diversify their sourcing across other countries, and improve their competitiveness and efficiency.

"Uncertainty and a lack of clarity on the implications of the new safeguard measures have prompted a number of Hong Kong garment companies to postpone plans to build new manufacturing facilities on the Mainland, although they still intend to increase their manufacturing capacity there in the future," said Mr Li. "Companies are also seeking more value-added, non-quota-constrained products and expanding sales into the China domestic consumer market."

The study revealed that although the removal of the MFA global garment quota system has simplified the garment trade, business in the second half of 2005 could grow more challenging because of the new safeguards. Meanwhile, many Hong Kong garment companies are taking a "wait-and-see" approach to the new system by maintaining their current business plans, while others are targeting more high-end fashion brands and expanding their network of agents and suppliers. Less than 10 percent said they would scale down, decentralize or relocate their manufacturing plants, while even fewer said they would pursue mergers and acquisitions as a post-quota business strategy.

The majority of respondents believe Hong Kong can retain its leading role as a trade hub for the region, and many still prefer to export through Hong Kong than southern China, due to Hong Kong's advantages in connectivity, clarity of customs procedures and customs efficiency. Respondents also believe that Hong Kong could benefit from streamlined cross-border customs, including features such as 24-hour customs clearance service and joint clearance at one customs clearance point.

"While China is set to grow as a global garment trader, most exporters will want to hedge their bets by dispersing operations across third and fourth countries," Mr Ting noted. "This will call for meticulous focus on efficient and timely integration of the supply chain, as well as more 'source-to-shelf' and value-adding services. Like all of our customers, DHL will be focused on remaining highly flexible and developing more customised services such as ironing and hanger services, and specialized packaging."

Press Contact:
Betty Lee
General Manager
Corporate Communications & Events
Hong Kong Productivity Council
Tel: (852) 2788 5036
Fax: (852) 2788 5056
E-mail: emilyc@hkpc.org

Katherine Wang
GolinHarris
Tel: (852) 2501 7984
Fax: (852) 2810 4780
E-mail: katherine.wang@golinharris.com